Property insurance policy does not cover COVID-related losses, federal judge rules

The Carilion Clinic cannot recover nearly all of its losses from the COVID-19 pandemic, which exceed $150 million, from its property insurer, a federal judge has ruled.

In a Feb. 4 decision, U.S. District Judge Michael Urbanski dismissed the bulk of a lawsuit the Roanoke-based health care system filed against American Guarantee and Liability Insurance Co.

The question was whether the virus – which has killed more than 900,000 people nationwide and caused incalculable financial losses to households and businesses – has inflicted the kind of harm covered by Carilion’s policy.

Urbanski granted a motion to dismiss the lawsuit brought by AGLIC, which argued that its insurance was for damage caused by fires, floods and hurricanes.

“While the virus and COVID-19 have undoubtedly caused losses to the Carilion Clinic in terms of facility closures, reduced medical procedures and increased costs, the losses are not direct physical losses covered by the property insurance policy,” the judge wrote.

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Although the 40-page notice kept alive part of the contested policy, a clause that pays for communicable disease business interruption, that provision is limited to a $1 million payout.

Carilion spokeswoman Hannah Curtis released a statement Monday evening. “We are aware of the decision and are reviewing it. Because this remains an active legal matter, Carilion is unable to comment further on the proceedings.”

The pandemic has sparked a flood of legal battles between property insurers and their policyholders — from hospitals to restaurants to fitness clubs — in state and federal courtrooms across the country.

Most courts have ruled in favor of the insurance companies, wrote Urbanski. On appeal, eight of 12 federal appeals courts have ruled that COVID is not applicable to insurance policies that cover direct physical loss or damage to buildings or other property.

In urging the judge to “not follow the herd,” Carilion’s lawyers argued that the health system’s experiments were more in line with rulings that took the opposite path.

But there was a physical loss of property in these cases, “whether it’s meth, gasoline, ammonia or asbestos contamination, a rock fall or a drain pipe failing,” Urbanski wrote.

“Here, by contrast, Carilion claims no infirmity associated with its ownership. Rather, the alleged cause of the loss is the global pandemic.”

Carilion filed suit last March, claiming AGLIC had “turned its back” and refused to cover losses amounting to more than $150 million, largely from elective surgeries that were postponed and patients who stayed home for months rather than seek treatment. ailments.

The health system, which treats nearly a million people in southwest Virginia, has also been forced to impose costly security measures against a virus that has infected more than 1,300 employees in a workforce of around 13,000, he said when filing the complaint.

Carilion says it paid $874,863 a year for a policy that fell short.